On July 12, 2012 the Department of Justice filed in the U.S. District Court for the District of Columbia against Wells Fargo Bank, subject to court approval, the second largest fair lending settlement in the department’s history. The Department of Justice alleges that between 2004 and 2009, Wells Fargo engaged in fair lending discrimination against African-American and Hispanic wholesale borrowers by offering them less favorable terms on loans than non-Hispanic white borrowers.
According to the complaint, between 2004 and 2008, Wells Fargo, the largest residential home mortgage originator in the United States, steered approximately 4,000 African-American and Hispanic borrowers into subprime mortgages while non-Hispanic borrowers with similar credit profiles were offered prime loans. Additionally, the Department of Justice alleges that between 2004 and 2009, Wells Fargo discriminated against approximately 30,000 African-American and Hispanic borrowers solely based on their race and national origin rather than their credit worthiness, and charged them higher fees and rates than their white counterparts. Furthermore, even after learning of its pattern of discriminatory lending, Wells Fargo failed to take sufficient and effective actions to correct it.
When the settlement was announced, Deputy Attorney General James M. Cole stated:
“The department’s action makes clear that we will hold financial institutions accountable, including some of the nation’s largest, for lending discrimination… An applicant’s creditworthiness, and not the color of his or her skin, should determine what loans a borrower qualifies for. With today’s settlement, the federal government will ensure that African-American and Hispanic borrowers who were discriminated against will be entitled to compensation and borrowers in communities hit hard by this housing crisis will have an opportunity to access homeownership.”
Of the $175 million settlement, $125 million will go toward compensating wholesale borrowers who were charged higher fees and rates as a result of the subprime mortgages offered to them because of their race and national origin, and any compensation offered to retail borrowers will be in addition to the $125 million. The bank has also agreed to provide $50 million in direct down payment assistance to the communities most affected by their discriminatory practices and which were hardest hit by the housing crisis. Wells Fargo will also conduct its own internal review of its retail mortgage lending practice.
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